image source, Getty Images
- Author, Nick Edser
- Role, Business reporter
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The UK economy grew faster than expected in May, helped by a strong performance by retailers and the construction industry.
The economy expanded 0.4%, rebounding from zero growth in April when wet weather discouraged shoppers and slowed construction projects.
Analysts said the new figures, along with recent comments from Bank of England policymakers, meant a decision to cut interest rates next month was on a “knife’s edge”.
May growth was twice as high as expected. The ONS’s Liz McKeown said many retailers and wholesalers “had a good month, both bouncing back from a weak April”.
The services sector, which dominates the UK economy and covers businesses such as shops, bars and restaurants, rose 0.3% in May, while the construction sector jumped 1.9%.
The question of how to boost growth in the UK economy was one of the key battlegrounds in the recent general election.
Responding to the latest growth figures, Chancellor Rachel Reeves said economic growth was the government’s “national mission” and “that is why I have already this week taken the urgent action necessary to strengthen the foundations of our economy”.
A new sovereign wealth fund was also announced to attract investment in infrastructure and green industries.
Shadow Chief Secretary to the Treasury Laura Trott said the latest economic figures “show that the steps we put in place when we were in government have strengthened the economy”.
“These figures also show that Labor will inherit an economy that has recovered after many difficult decisions we have made in government,” she added.
“People want to get out and about again”
Carrie-Anne Moore runs alternative shop Broken Bonds in Birmingham’s Digbeth Indoor Market, where she says business is booming.
“I started quite small and in the last six months it’s grown quite substantially from a small unit to a large unit to number two, so it’s been pretty good for me,” she said.
As well as her space in Digbeth, Ms Moore also sells at markets and tattoo conventions.
“I think now people want to go out and over again, they don’t want to shop online,” Ms Moore added.
“They want a more personalized shopping experience than just a big, faceless company.”
Things aren’t going so smoothly for Mark Preston, who runs Ideal Skateboard in Digbeth, though.
“It’s been a very difficult spring … nobody’s really gone out and bought things because the weather has been terrible,” he said.
“Skateboarding is an outdoor sport, so when it’s wet, people just don’t do it. And if they don’t, they don’t buy more products.”
Economists caution against placing too much weight on shifts in economic activity within a month, as factors such as weather can affect them.
In the three months to May 2024, the economy grew by 0.9% compared with the previous three months, which was the fastest pace in more than two years, according to the ONS.
Analysts said the surprisingly strong growth figures could reduce the chances that the Bank of England will cut interest rates from a 16-year high of 5.25% at its meeting on August 1.
The bank raised interest rates to slow the rate of inflation – the rate at which prices rise. However, the latest inflation data showed the rate falling back to the bank’s 2% target.
Despite this, two members of the Bank’s Monetary Policy Committee (MPC), which decides the level of interest rates, said this week that they remained concerned that inflationary pressures remained.
“This picture of the economy growing a little faster than expected could make Bank of England policymakers a little more cautious about voting to cut interest rates,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“The possibility of a summer rate cut is fading, with the August 1st vote expected to be on a knife’s edge.”
Rob Wood, Chief UK Economist at Pantheon Macroeconomics, said: “The UK economy is doing well and is really putting last year’s minor recession behind it.
“Rate-setters appear desperate to ease policy and said in minutes of the June meeting that they are not interested in stronger-than-expected growth,” he added.
“Even so, this latest growth surprise supports our call for the MPC to wait until September to cut the bank rate.”